Ray Dalio - "Cash is Trash"
It was Davos week where the world elites meet up in Switzerland to discuss the current state of the world. Of course we get some hedge fund legends/billionaires there to discuss the future of monetary policy and the economy such as Ray Dalio and Paul Tudor Jones…both of whom have been discussed in my blog posts the past year more frequently. If you remember, both have spoken about the constraints of the Federal Reserve and other Central Banks around the world when it comes to dealing with the next recession. Both have been big advocates of Gold…stating it is the best currency to be in.
Dalio kept the same tone for this interview, but did say he did not want to be known as the big Gold guy. That is okay, because the headline CNBC went with was “Cash is Trash” which actually fits with the classical economics view of what is coming in the future.
I do recommend listening/watching the entire interview with Ray Dalio:
Ray Dalio’s opinions is still well respected and acted on. When Mr. Dalio came out saying perhaps it is time to allocate a bit more in Gold back in early 2019, I believe his words started the initial positioning of large funds into Gold… these large funds will either buy physical bullion, play the Gold royalty and streamers (perhaps the best way to play Gold), and/or play the ETFs such as GLD and GDX. My analysis on GDX and why I am excited about the miners can be seen here.
Ray Dalio also gave the parallels to the 1930’s saying we will see asset inflation and money printing as well as a geopolitical situation where a rising power is displacing a falling power (China vs the US). He warns that more cuts will have to happen when the next downturn occurs sometime within the next 5 years. Negative rates is not out of the question.
What peaked my attention was the fact Ray Dalio said that currencies will be inflated by the central banks. We here at UnchartedFX have been saying this since last year. All currencies will be inflated to attempt to create a wealth effect. Central Banks really have no more options and ammunition. It is all about maintaining confidence in the system and pretending that what they are doing is working. They cannot mention QE again, even though the balance sheet is expanding, because this would illicit another confidence crisis. QE was supposed to be a one time desperate policy to prevent another 1930’s like depression. To say we are back on QE means that QE did not work before, and many will realize this means we will be in a QE forever and low to negative interest rate environment indefinitely.
Dalio also went on to somewhat explain money cycles. He briefly mentioned how throughout human history, we have had different money cycles between a hard money system and a soft money system. This blog has been warning about the possible end of this soft money cycle, which will be prolonged with digital money. In summary great changes will be occurring, but it may not be all negative given all the new technology that will be invented. However, this is still about the monetary aspects and the wealth gap, which will continue to increase creating more division in society, and the fiscal policy responses will be crucial.
In my post about Gold and classical economics, I have spoken about why Gold goes up when there is a confidence crisis in governments, central banks, and lastly the fiat money itself. All three of these are occurring right now.
There are people a lot smarter (and a lot wealthier) than me saying the same things now, and it warrants your attention.
Finally, let us take a look at some of the equity charts. Markets still remain the only place to go for yield. Ray Dalio’s paradigm shift is well into play right now as both Stocks and Bonds are at high values. If you are a fund that follows asset diversification and rebalancing, you generally sell stocks and move into bonds when they are cheaper and vice versa. This is not the case now which means either Bonds drop (meaning higher interest rates) or Stocks drop which would mean troubles for pension and other retirement funds who have been forced into stocks to make their 8% a year yield.
This is why we believe markets will continue higher, barring any black swan type event. However, pullbacks are normal and should be expected.
The media is saying the markets are falling due to fear of the coronavirus in China, but market history shows markets going up during these type of virus fears. It is really about oil.
Posted below are many equity markets that I trade on the 4 hour and daily charts. If you follow my trade ideas or have done the course, you can see they are providing us with criteria for a move lower. I covered the Japanese Yen on tradingview, and it was a great trade. The Yen is giving us signs of another lower leg. Another swing in the current trend.
Gold and Silver got a bid, and it is well worth noting how they have so far held up. And of course, we will be watching to see how Oil reacts at the support zone it is reaching.
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